Published by Programme B
It can be challenging to have a low credit score, given the repercussions it entails. While some folks would consider their credit rating just a second thought, it can impact your ability to borrow money, get a low insurance premium, and even your job application.
If you have a habit of being late on your bill payments or defaulting on your loans, it will likely drag down your credit score. Read this blog post to know the importance of maintaining a good credit score and how bad credit can have a negative effect on your lifestyle.
Hard Time Securing Loans
Banks and lenders will assess how you are going to pay back the loan before approving your loan application. Your credit score is one indicator of your capability to pay the loan. Scoring models used by Vantage Score and FICO will collect data in your credit reports – from payment histories to loan balances – to determine your credit score.
It is challenging to apply for a mortgage, car loan, or credit card if you have bad credit. Even if your loan application is approved, your interest rate will likely be higher than if you have a good credit rating. Most lenders require applicants to have a “good” to “excellent” credit score.
If you need to get a conventional mortgage to purchase a house, your FICO credit score should be at least 620. For an FHA mortgage, your credit score should be at least 500, but you have to make a 10% down payment and pay for mortgage insurance, which makes your overall house loan costs higher. Visit AimFinance for more information about getting loans.
Higher Insurance Premiums
Not paying your mortgage on time or increasing your credit card balance can hurt your credit score. If you take out car insurance with bad credit, you will have to pay higher premiums. This reality is pretty common in people with auto insurance.
A study suggests a correlation between low creditworthiness and the probability that drivers will file an insurance claim through the insurance company. A website comparing various insurance quotes called The Zebra reported in 2019 that drivers with poor credit paid double the insurance costs than those with good to excellent credit scores.
Difficulty Finding a Home to Rent
If you think only homebuyers will have a problem, you must think twice because those looking for a house to rent will also get a headache with having poor credit. This is because landlords and property managers will look at your credit score before you can live on the property. The success of your rental application depends on your credit score.
It will be challenging for you to look for a rental property if your credit reports contain late payments or defaults. The only solution to this problem is paying a higher security deposit or getting a cosigner.
Paying a Deposit When Applying for Utilities
When you want to open an account for an internet connection or utility, it can be challenging if your credit score is low. Utility companies require customers with bad credit to put down a deposit before they can set up an account, which serves as a guarantee in case you neglect to pay your bill.
You will even have a difficult time applying for a cell-phone service if your credit reports show borrowing red flags. In this case, you will need to make a deposit or use a prepaid plan. It will also be hard for you to avail of discounts or deals with the popular phones if you have a low credit score.
Difficulty Getting Hired for a Job
Not taking care of your credit score may not only have an adverse effect on the cost of borrowing money but also your capacity to earn a living. If you are looking for a job, you will need to provide not only your professional qualifications but also your credit score.
Your credit reflects your ability to make good financial decisions, and employers nowadays perform credit checks on job applicants before hiring them. Roles that entail handling money or any managerial post, a credit assessment is important.
In 2016, CareerBuilder conducted a survey where the majority of the employers they questioned (72%) said they do a background check on their new hires, while the rest of the employers (29%) said they run a credit assessment as part of the job application process.
Final Thoughts
It is a mistake to think that your credit score is just a number because there are far-reaching repercussions of having bad credit. Since lenders, utility providers, insurance companies, landlords, and employers assess your credit score to ensure your ability to fulfill your financial obligations, it is crucial you maintain a healthy credit score. Always pay your loans, credit cards, and bills on time.